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By: Debra Kabalkin on March 19th, 2014

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What Employee Turnover Really Costs Your Company

Best Practices | Talent Acquisition

By definition turnover is the rate at which an employer’s workforce turns over.  As an HR Business Partner at Helios, we perform audits for our clientsmh900441459-1 and one of the HR metrics we ask about is turnover.  The higher the percentage the more we investigate to ensure there is not a systemic problem within the organization.  Some companies think everyone is replaceable and it’s no big deal if someone leaves; as there is always someone else looking for a job.  Having worked in Human Resources for many years I know that although it might be true all employees can be replaced, losing an employee costs the company directly and indirectly.

It is important to know some of the causes of turnover to determine the costs.  Some factors which cause employees to leave a company are:

  • Employees are unhappy with the work they are performing
  • Employees are unhappy with their supervisor or manager
  • Compensation (employees do not feel they are getting paid enough)
  • Lack of opportunities for career advancement

Each of the factors alone do not indicate an issue with the culture of the company however, if several key employees leave it can be an indicator of a larger problem brewing.

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What does turnover cost a company?

The indirect costs of turnover don’t hit your profit and loss statement. It's not something a company can budget for. Some are:

  • Lowered productivity for the department
  • The remaining staff have to overcompensate and work longer hours due to the vacancy
  • Loss of institutional knowledge
  • Morale is low (if the employee was well liked)

Actual costs which can be attributed to turnover are the recruiting costs incurred to replace the employee. These costs vary depending on the difficulty in filling the vacant position, the nature of the job itself and the reputation of the company in the marketplace.

To determine the cost one should look at:

  • The costs to post a position
  • The costs associated with using an outsourced recruiter
  • The hiring manager’s time to review resumes and conduct interviews
  • Training costs for the new employee
  • Administrative time to conduct New Hire Orientation and Onboarding

What is your company’s turnover rate? The bottom line is that turnover is expensive. It can’t always be avoided however; when it can, you should try to retain your employees rather than lose them. If you suspect a larger problem is surfacing act now to remedy the situation.

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